Five9, Inc. Q3 FY2025 earnings call

Key Areas:

• Significant and evolving market opportunity in AI-powered CX, with Gartner forecasting traditional CCaaS to grow at 9% CAGR and GenAI customer service at 34% CAGR through 2029 to $48B.
• Unique positioning with data-driven platform enabling end-to-end orchestration of human and AI agents, including AI-based routing, in queue self-service, agent sidebar, and AI barge-in.
• Strategic partnerships: Launched Five9 Fusion for ServiceNow in Q3, with year-to-date ACV bookings with ServiceNow quadrupling. Strong traction with other partners like Salesforce and Google Marketplace.
• Solid bookings quarter in Q3: Won highest number of $1 million-plus ARR new logos in 2 years, installed base bookings at all-time high with examples of large deals from various industries.

Subscription revenue, making up 81% of total revenue, grew 10% year-over-year, primarily driven by enterprise AI revenue growing 41% year-over-year in Q3. Adjusted EBITDA grew 37% year-over-year to a margin of 25%. Record free cash flow grew 84% year-over-year to a margin of 13%. Subscription revenue represented 81% of total revenue, up from 79% a year ago. Telecom usage was 12% of revenue and professional services made up the remaining 7%. On an LTM basis, enterprise contributed approximately 91% of total revenue with the subscription portion growing 18% year-over-year. The commercial business represented the remaining 9% and declined in the teens year-over-year.

Q4 2025:

• Revenue midpoint: $297.7M (4% sequential growth).
• Non-GAAP EPS midpoint: $0.78 per diluted share.

Full-Year 2025:

• Revenue maintained at $1.146.5B (double-digit growth).
• Non-GAAP EPS midpoint raised by $0.06 to $2.94 per diluted share.
• Adjusted EBITDA margin raised to ~23% from prior 22%.

2026 Outlook:

• Sequential revenue flat in Q1 '26, then momentum builds quarter-over-quarter.
• Double-digit revenue growth in second half of 2026.
• Non-GAAP EPS expected to exceed Street consensus.
• Adjusted EBITDA margin to expand by at least 100 basis points to 24%+.
• Free cash flow ~$175M.

• Adverse economic conditions, macroeconomic challenges (inflation, consumer spending, interest rates, currency fluctuations).
• Lower growth rates in installed base customers.
• Commercial revenue decline due to underallocated demand gen spend toward commercial and gap in sales capacity from promoting commercial reps to enterprise.
• Lumpy sales cycles for mega deals.

Q: What changed in Q3 that led to being only at the high end of guidance?

A: Bryan Lee noted 6 percentage point differential in subscription revenue growth, with 5 points from tough compares (largest customer multiyear ramp, minimal seasonal uptick) and more than anticipated commercial revenue decline due to underallocated demand gen spend and sales capacity shifts.

Q: Why is installed base booking taking time to translate to revenue?

A: Bryan Lee explained installed base bookings, including AI and new business units, have a ramp converting from bookings to revenue similar to new logos, with Q4 guide reflecting backlog of new logos and installed base bookings starting to convert.

Q: What's the differentiator in international market?

A: Andy Dignan mentioned strong BT relationship, reliance on partner go-to-market, and investment in international space, with international having upside and tracking well.

Q: Competitive landscape and AI adoption?

A: Michael Burkland said AI demand is high, enterprises seeing value in platform players like Five9 over point solutions. Andy Dignan noted customers in 3 camps (cloud to AI, prem to cloud/AI, prem to cloud with AI-first), and Five9's AI-first go-to-market motion.

Q: Pricing pressure and revenue recognition for AI?

A: Andy Dignan stated no pricing pressure on core business at renewal, but customers want AI pricing models. Bryan Lee mentioned AI product pricing models are capacity or consumption-based, with commitment model plus overage charges.